FIRE by 50: How to Enjoy the Journey Toward Early Retirement

welcome to the BiggerPockets money podcast where we interview Mark Troutman from Mark's money mind and hear about his money story and how he found balance on the journey to fire hello hello hello my name is Mindy Jensen and with me as always is my fair and balanced co-host Scott trench great to be with you and always on another level recording podcasts with you Mindy you know sometimes these are really spot on and sometimes these are super spot on Scott I love it Scott and I are here to make Financial Independence less scary less just for somebody else to introduce you to every money story because we truly believe Financial Freedom is attainable for everyone no matter when or where you're starting that's right with you at a retire early and travel the world going to make Big Time Investments in assets like real estate start your own business or follow a common sensical path that will get you to Phi and support the good life on the way we'll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams Scott Scott we have a new segment on the show called The Money moment that helps you on your journey to financial independence with a money hack tip or trick today's money moment is do you need a new Major Appliance but you want to save some bucks stores like Lowe's and Home Depot have a scratch and dent section where you can get your brand new appliances at a discount why because it has a minor scratch on it maybe it's got a minor scratch on the side but if you pick right nobody will ever know because who sees the sides of the applied do you have a money tip for us email money moment at biggerpockets.com all right Scott today we're talking to my friend Mark Troutman he is I met him at Camp Phi 100 years ago and he is a wealth of information about all sorts of things regarding Financial Independence and money in general investments in general he is a delight to talk to and I am so excited to bring this show to our listeners yeah well I mean we learned a lot from uh Mark today he's absolutely brilliant and very sophisticated very technically sharp with money um you know I had had some setbacks and I think some really good um and some and some personal loss and I think had some really good perspective on both the journey to Phi and and um what to do with Phi once once you've gotten there yep I think think this show is the kind of show that you should make plans to listen to once and that like on your Drive-In and then listen to it again when you can take notes because there's a lot of things that Mark shares that you're going to want to write down Mark Troutman runs the website marks money mind where he writes and educates about well money today he's on the show to talk about his journey to financial Independence and finding balance along the way Mark welcome to the BiggerPockets money podcast I'm so excited to talk to you today oh it's great I'm glad you invited me and I'm looking forward to it Mark let's start off with your money story where does your journey with money begin well it's a long one because I'm 57 so there's quite quite a big time frame in there but um basically my wife and I kind of stumbled upon the idea of financial Independence before it was kind of a thing so this was back in the uh mid 80s um and we kind of did a lot of the wrong things initially we had credit card debt we had paid for our wedding with credit cards we were I was leasing a car there were a whole bunch of errors that we were making and then um eventually I read a book The Wealthy Barber and The Millionaire Next Door and those two books were very influential in our kind of Shifting to a money mindset that made more sense for us um so we got out of credit card debt we started saving I think The Wealthy Barber talks about saving him you know 10 of everything you make we decided to make that 20 so that was one of our big benefits right there out of the gate after we paid off our credit cards and then also when I got a job so I started working on Wall Street in 1987 during the stock market crash as a matter of fact I was sitting on the margin desk when that happened so that was an enlightening event but um about three years later I was so I kind of moved from company to company but three years later I was hired by a Chief Financial Officer to come in and help work on mutual fund as a security analyst and he said look I'm giving you a big raise to come over here and I highly recommend you max out your 401K and you'll you know you'll benefit from this later in life and you know um he's also suggested investing 100 in equities which I did and then I went home and I said uh Marge do you and that's my wife's name Marge do you have one of these 401K things they sound kind of interesting and she's like yeah I think we have one of those and I said well you need to Max that out too so basically when I got my new job I did not um suffer kind of a reduction in pay because of the Boost so was a way to kind of max out the 401K without really taking a hit from a net paycheck standpoint and those that decision alone made us both 401K millionaires when we both retired so that was probably one of the biggest influential events of my life and then there was another kind of funny one you know we were big skiers we would go to Vermont and ski every weekend and we were reading this magazine you know we were our vision was we could retire in Vermont and just buy a little house and you know ski every day and how do we do that and uh we came across a ski magazine and and somebody actually found this article because I referenced it in a blog post and somebody actually dug up the article and it's called bum's raw she was in ski magazine in March 1989 and then it was this couple living out of their car and they had this motto earn little spend less invest the rest and the light bulb just kind of went on we're like whoa that's it that's all you really need need to do except we're not too keen on this little part so we said well let's switch this around to make some save and invest so put savings first and live on the rest and then we basically just live by that motto going forward we were never Uber Savers you know we saved in the neighborhood of say 30 percent you know was I I guess our average over our lifetime so we weren't like 50 70 Savers we did have pretty high incomes not you know crazy high but pretty comfortable incomes so it was basically just do that fast forward you know 20 plus years and there we were Financial Independence and then actually found the financial Independence Community after I retired and said hey there are other weird people like us out there so can can you give us an idea of like the relative scale of your of your incomes and your savings during this this two decade period to financial Independence yeah so I mean you know this was back in the 80s I think we both started off I think my first job was like 25 000 but when I made that move um I got a raise from I think I was up to 36 at that point but my my move went to 50. so that was that 14 000 increase was what that manager said hey look bank that at the time the max was 12 500 ultimately I kind of grew into an income of kind of the low 100s over time so I was a portfolio manager of a mutual fund but not the kind that you hear about on TV that are making millions of dollars so my you know I I would say my base salary was somewhere between 125 and 150 for most of my career and I would occasionally get uh you know some small bonuses along the way my wife was in and out of works so she worked very diligently before our daughter was born and shortly after our daughter was born making you know High you know close to a hundred thousand dollars but then stopped working and actually we ended up um doing kind of a live-in flip which we didn't even know that was a thing but that that's what we were doing and she quit her job and became kind of the GC for that project so she was not making that uh her entire you know life and then once we moved to Colorado in 2008 she got a job here locally just making I think was like 25 or 30 000 initially and eventually grew into the 40s but nothing significant how did you discover this without all of these blogs to tell you what to do Mark I I doubt your story because I'm the the living flip Queen and you didn't do a living flip before I did uh yeah I did because I'm old you're only just older than me you didn't become five without reading Mr Money Mustache come on I actually house hacked too which is kind of funny looking back we did a whole you can't house hack if you didn't read Brandon Turner's article no so what happened was um we you know as we were trying to get our credit card debt under control and so forth we're renting an apartment um that was a really crappy place but we had fixed it up and it was it was pretty nice but um my mother-in-law um had a recent divorce and got the house in the divorce but no like um stipend or anything like that so she really needed to sell the house it was a big house so we said well we could move in with you pay you some rent to help you get this house ready for sale uh and then you can cash out and and potentially have some resources to live off of because basically it was Social Security and the equity in the home was all she really had um so when she sold the house she was quick to say oh I'm just going to buy another house I'm like whoa whoa wait don't do that we're gonna buy a house why don't you come live with us you put the down payment on the house and then when you move out we'll pay you back so effectively we took the mortgage out on that house I think it was 279 000 our house she put a hundred thousand dollars down and this was back in the day where you had to kind of roll your gains over um otherwise you had to pay tax on it so that was the old rule it wasn't the 250 500 exclusion like it is now um so basically she had a pretty smart accountant that said well she is technically going to buy the house and then gift you um your ownership share back and use it against her lifetime exclusion um so therefore you know it goes as a gift to her but there's no tax consequence she had reported gift tax so it was basically a house act where where we got a free down payment we made the mortgage payments and then when she moved out we just you know refinanced it but that was kind of our attempt at house hacking without knowing what it was I love everything about this story because you did it on your own I was of course joking about not really doing any of this because you hadn't read somebody else telling you what to do and I want to point out that there's a lot of creativity legal creativity within the financial space if you just do a little research dig into the tax laws and look into what is accomplishable if you just think outside the box and here Mark had nobody telling him all about the live-in flip and he just did it anyway and he had nobody telling him about house hacking I actually house hacked two back when it was called having a roommate um and I lived with my brother and that's all house hacking is is just a cute name on top of being called having a roommate or owning extra properties um and you did uh you became financially independent before Mr Money Mustache ever like did his blog and that's just you being Frugal and saving because some guy told you to invest in your 401k and you know you don't have to follow these specific rules because somebody else said something if something feels right if you want to try this road or try that road that's how we get all these fun little terms uh because somebody tried it and through a catchy on it so I love that you're doing all this stuff because that's just who you are could you give us um some sense of of the summer summary of The Journey here you started and and you said 1987 on the on the desk of well on the on Wall Street what year did you retire and what did your portfolio look like at that point in time and how in in beside besides the 401K and this house moved were there any other consequential moves that you made yeah so um from the real estate perspective all we really did was primary homes we never owned rental property or anything like that the the second home we did was a foreclosure and it was a live-in flip that was the one where I said my wife was kind of the GC for two years and it was this crazy you know Pie in the Sky idea that we're gonna buy this 5 000 square foot house because on paper it was super cheap per square foot and we were going to make it into this you know colossal party house and it ended up being like six bedrooms five bathrooms with a pool and three acres and it was basically two houses um attached to each other Colonial and uh and a cape and we lived in one side and renovated one side and then switched and at the end we're like we were fine with one of those sides we don't need both so we ended up selling that but so we did make a few you know good steps on the real estate side but it wasn't through rental real estate um the rest of it has all been just Financial assets so between the 401K and then also saving in our brokerage account when it was you know over and above the limits of the 401K contributions um and more lately it's been you know converting you know from traditional to Roth and so forth but basically I retired at the end of 2015 at the age of 50. and then the goal was not a number it was an age so I had an age goal I said I want to stop working when I'm age 50. um when I look back now based on kind of what I live at and I say I now because my wife did pass away um but when I look at what I live on now my financial Independence number was probably in my mid-40s somewhere I just wasn't really aware of it I wasn't calculating it I was focusing on I want to stop working in 50. actually in 2008 when I was what 43 I went in and actually quit my job to move to Colorado and I had said to myself I wasn't really thinking Financial Independence at the time I was just thinking I didn't want to live in the New York City area anymore I wanted to move to Colorado my daughter was in third grade this would be the time to do it I wasn't really sure what I was going to do but I knew I'd have enough leeway to make that decision and you know kind of figure it out we always said well we can move to Crested Butte and ski for a year and if we don't like it I don't think we'll turn around and say well that wasn't a good idea I think we will have fun doing it and actually when I went in and quit kind of using the jail Collins Fu card which I didn't know that's what it was at the time um but they said whoa wait a minute can you keep managing the fun for us from out there and I said yes but under these circumstances I only want to do certain things I don't want to do other things and so I basically kept doing that until 2015 and actually just ended up padding the resources so I'm you know further along and you know more comfortable Financial Independence figure than I was say in my mid-40s so I live a probably a nicer lifestyle than I would have if I truly stopped in my mid-40s and so when I did retire was 100 Equity I wasn't thinking about you know sequence of return risk I wasn't thinking about any of this stuff I was like ah this looks like a pretty good amount of money I should be good then I started diving into big earn and the four percent role in all these things and saying whoa maybe I should you know scale it back a little bit now I'm like 80 20 and I'm comfortable with that and actually the income from my portfolio exceeds what my annual expenses are so effectively it's in essence a Perpetual portfolio at this point mark how old are you now I'm 50 I will be 58 in October awesome and what is a day in the life like for for Mark what's like uh we're recording this on Tuesday August 1st what's what's a Tuesday in Mark's life so it was one o'clock when we started and I took my shower at noon after eating a late breakfast and drinking my coffee and reading the Wall Street Journal which is something I do every day um I just really like to keep tabs on what's going on not because I trade or anything I don't do any of that I'm a pure Index Fund investor but I do get my news from that source so that is what I do every morning but usually the mornings are coffee Wall Street Journal listen to a bunch of podcasts think about what am I going to do for the day and then the afternoons up to me so that's kind of my life and then I do a lot of traveling and you know campfire events and financial Independence Events I'm going to you know Bali with Amy minkley and her crew this year so doing a lot of things like that in the community Mark you also look like you're in fantastic shape what do you do for fitness out here in Colorado so it's funny I have a friend Roger Whitney who's the retirement Answer Man podcast host I don't know if you know him but um I'm also part of his kind of rock Retirement Group but we have a challenge this year myself and him uh in that we are going to Row 2 000 meters a day every day for the entire year so that's 730 000 meters um I don't do it religiously every day but every day I do row which is most days is 5 000 so that I can stay ahead especially if I'm traveling so that's one of the secrets is just getting on the rower every day for half an hour walking my dog so having a dog who walks me which is great and then living in Crested Butte on Colorado where there's plenty of hiking and biking and stuff like that it's pretty easy to be active anything to do in the winter oh yeah avid skier that's why I live in ski Town awesome so that that that's a pretty good picture of your life there's traveling great a great great healthy outdoor activities and all that kind of stuff and then Lots you're still really engaged in the financial Independence Community it just sounds like such a wonderful way to spend um uh spend a lot of days so let's talk about uh the the transition between working I would love to hear about two transition points as well in the context of that so we know what life's like now what was it like you know in the year leading up to the move to Colorado and then again in the shift from the kind of negotiated work environment that you created and when you moved out to Crested Butte and then the transition to full retirement yeah so it's kind of interesting so I was um working in the Money Management Field I was the equity portfolio manager I was the only Equity kind of guy in the in the company um and everybody else was in fixed income and they were primarily mortgage-backed Securities so this was going back to like 2006 and we would have these board meetings I would get up there and do my little thing about you know here's the Equity Fund and this is what I did and so forth and then they would get up and talk about their fixed income fund and around that time I was just like this doesn't sound great you know these mortgage situation and all these types of loans that they have in their portfolio and they're talking about cds's and how they're AAA even though underneath they're not really that great and I was like you know this doesn't really sound great and here we have this you know house that we've just completed that's you know way too big for us I said let's just sell that house it's not right for us and my wife said well what what do you think we should do and I was like well we can look around and see if there's another house or we could just rent so that's what we did we sold our house in 2006 we rented and it's funny the person that bought it he still owns a house so obviously he's made it work but it was a Countrywide 90-10 piggyback loan uh and when you're in New York and we're in New York you actually sit across the table and I'm looking at all the documents and I'm like this is why we're someone else because look at this the person was I think 25 years old had just started his own business and I'm like what is he doing buying it 850 000 house but he still owns it and obviously he's done well so good for him but it was just is kind of like this is the kind of loans that they're giving out today and my wife was working in the mortgage industry as well and they were you know seeing liar loans and all kinds of crazy stuff so anyway so we sold the house moved into a rental was kind of like well you know our daughters um you know at that point first and second grade and we're not really sure we want to live here taxes are super high we were living in Warwick New York where taxes are extremely high I think our taxes were close to 25 000 a year or something like that it was just insane um and we were just like you know what if we're going to make a change let's do it now so basically I just walked in and you know kind of quit kind of thinking maybe they would make a deal or something but I had I you know we had this discussion like if they may say pack your bag see ya leave here give me your computer kind of thing they didn't um but that was the shift in mindset and we've always kind of lived life on our own terms and I think that's one of the benefits especially after my wife has now passed away that I'm fortunate that we did that we kind of live this life of balance the whole way so then we moved across the Butte and just kind of I did the work that I had to do I wasn't working more than I needed to I'm kind of living almost like a semi-retired lifestyle but still getting paid um and then eventually just said all right I really don't need to work anymore and so I think I'm done and there were some you know situations at work that I was not you know Personnel situations that I wasn't as keen on that I just said you know I'm I think I'm done you've mentioned the word balance several times which is a little close to home for me personally people in the Phi Community seem to have this all-out race to get to Phi and and you know they don't save 10 or 20 percent of their income they say 75 percent of their income and it seems like it's this push to get to Phi and they don't really enjoy the journey I know that that's true for me and my husband and it's true for a lot of people um I've heard from a lot of people recently saying I I didn't enjoy the journey and now I have this kind of rather large pile of money and I don't know what to do with it um how did you find balance on your way to fight well I think the benefit was not knowing about Phi because I think if I did have all these podcasts and all these people to compare myself to we probably would have been saving at a very extreme rate we actually raced cars for a period of time we would not have been doing that because that was not an inexpensive hobby by any means we would certainly not have been doing that we also would go it's funny because I read the book die with zero and he talks about this island Saint Barts well that's where we used to go all the time for vacation that was literally where our family went on vacation every single year now we did it economically off season you know and so forth and we found really good deals but we certainly weren't skimping on where we were going and we would fly first class and the way we were doing that was using points so we were kind of doing the whole points thing at the time you know United was flying direct from Newark to St Martin and and you could buy an economy seat for like 300 round trip and then use points to upgrade to First Class and it was a really kind of good loophole at the time you can't really do that as much anymore but we were living a great life you know we looked back my daughter who's Now 23 we look back and we we had some really good times and and I kind of tell people that you know my wife passed away uh two years ago now she had she was diagnosed with cancer about four years ago and you know had we not done all those things we would have missed out on a lot of Life events that we couldn't go back in time and and replays and frankly I'd be sitting on just a larger pile of money I think of like what is it uh uh Scrooge McDuck you know from uh Bugs Bunny sitting on a huge pile of coins and bills and whatever but I'd be the most depressed person I think I would you know you would know because I would have missed out on all these things that I can't go back in time and replace so I kind of you know suggest to people hey it's great to go for financial Independence you can do it you don't have to do it in five years or ten years enjoy the rest died because you can't replace that ride down the road no matter how much money you have okay so the enjoy the ride comment is really really powerful however what about people who have a terrible ride you alluded to uh Personnel issues that you weren't so keen on and we've all worked for that horrible boss where you just like I can't believe I have to go in and face this person again every single day so how do you balance I hate my job because of personnel issues with I don't necessarily want to do this Death March defy to quote Carl yeah so for me it wasn't you know and I want to set the record straight I did not hate the people I worked with so I don't want anyone if they're listening thinking I hated them no that's that's me projecting I hated the people that I worked with at that one job yeah there were certainly some things that I was asked to do that I didn't want to do for instance they were like oh you should create this new fund because this is the hot new thing of the day you know and I was like no I'm not gonna do that I don't agree with that and if you want someone to do that you need to hire somebody else to do that and I really just kind of towed the line and even so I was managing a large cap um Blue Chip dividend fund basically is what it was um and I was at the board meeting in 1999 if you remember what happened in 1999 when the internet stocks are all the rage you know I had board members telling me like just buy buy anything all this stuff is going up just buy anything and I was like no that's not what we're doing that's not what our perspective says and frankly I'm a larger shareholder than you are so I am you know I have more skin in the game and we're not going to do that to any of the shareholders and and you know I was proven right but I had to be willing to basically be walked out the door and say see you later but I so I always I feel like because when you're in this position of not necessarily Financial Independence but a situation where you have a financial wherewithal behind you you can make decisions that other people might not make because they're worried about the next paycheck I was never worried about my next paycheck so I basically would push back and it never really came to bite me so in all these situations it really just kind of worked out because you know and frankly I worked for a small company that was privately owned and the owner of the company would frequently tell me I'm so glad you just tell us how it is because we would have made a lot of mistakes if you didn't say that so thank you for doing that and oh by the way you know here's a few shares of the company as a result or whatever you know uh it would it would benefit me more than it would hurt me and and I just tell people that if you have the financial backing you can make your own path and if that path that you're on doesn't look good choose a different path yeah you know it seems like you're story and you're care like you're obviously a highly competent person and you have very clear values and are not afraid to speak your mind and you have the basic financial position and strength to be able to say this is how I feel about it no uh at various times in your career when those things came up and I think all those things are interrelated right it's so much easier or you you can have that confidence to speak up and say no we're not going to do it that way um when you're when you've been saving for a decade uh and have built a strong financial position and know you know you've got a a a a strength in a career and you save that money and don't spend it and blow it on things when you have the character to begin with in the first place with it it seems like these basic principles it seems so obvious so easy the way that you've gone about building your financial position um over over a few decades and we're able to retire early why don't you think this is more commonplace like why why do you think you were the exception um one of the one of the rare folks who was able to do this early when maybe some of your peers making the same income as you uh maybe weren't able to achieve the outcome you had you've been able to create financially in life well I think it's you know being willing to walk you know a different path and being different than others that's the first thing because all of my friends from you know back then um were all spending all their income especially you know people that work on Wall Street it's it's crazy I mean you think people on Wall Street would be financially Savvy I would say it's actually the opposite they always believe there's more money around the corner um and I wasn't like that and we were willing to just be different um so you know we were willing to just say no we're not going to go out to that fancy dinner we don't need fancy clothes or fancy watches or whatever we're just willing to do what we want to do and walk this you know different uh life so I think that is one thing you need to be is kind of independently minded um but I think that again not having as much information I think was almost a benefit because today with so much information I think you're comparing yourself to others um and I think that's a mistake because we never really compared ourselves to others we just compared ourselves to how are we doing today relative to how we were doing a year ago or two years ago five years ago and that was our Benchmark we were never comparing ourselves to other people and frankly now that you know when I did retire a bunch of my friends from Back East who couldn't retire because they were you know continually increasing their lifestyle along with their paychecks we're like you were telling us this whole time how to do this and we none of us did it and we can't believe you actually did it and I was like yeah it's not rocket science um you know I really believe that if you save and my daughter you know we kind of instituted this with her when she first started earning money was save 20 of everything you want you earn and just get used to it and if you do that I think as a bare minimum you're gonna get there eventually it's just a matter of when if you want to make it very great you know I'm kind of hesitant to suggest people do 50 or 70 or 90 because I think you're potentially giving up too much life to do that unless you just have you know big windfall or you have a ridiculously high income then maybe that's a different story but for the average person um I think you know it's and you know I've been there it's fine to retire at 50. it's fine to retire in your mid-40s you don't have to do it in your 30s or 20s that's right you don't have to retire in your 30 these are your 20s but if you do want to retire in your 30s or 20s then you're going to have to have a much higher savings rate than 20 percent you're going to have to high have a 75 85 90 savings rate and you're going to have to have a super high income you can't be making uh marks 23 000 a year starting bonus or starting salary back in the day with uh and save you know 80 of that that's not going to get you to early retirement at age 28. so mechanically once you retired how did you begin actually spending on the portfolio um and and harvesting the the wealthy you created As I understood it you had a couple of big great housing moves the 401K balance and did you have any after tax accumulation cash pile other dividends income um how are you financing this yeah so um because you know if you talk to people in in my age bracket you'll find that many of them have a very high percentage in tax deferred traditional type accounts that was me I did have somewhere in the neighborhood of 85 to 90 percent of my assets our assets really but mine now that I've inherited my wife's Assets in traditional 401K traditional IRAs from you know previous employers um I did have or we did have some money in cash as well uh and also smaller Roth IRAs that we were converting a little bit over time um but actually I avoided drawing down my portfolio for the first two years and I'll tell you how I did it because I was kind of afraid to take the money out and how was I going to do this and there was money in the Roth it was you know a Runway of a couple of years in in the brokerage account and cash and so forth that I could tap but even that I was afraid to do so what I ended up doing was we had this classic car I mentioned we used to race cars that was you know I did have this car in the garage that was worth a bunch of money and I didn't really need it anymore and wasn't driving it on the racetrack or anything uh became kind of a collector car so I sold that which basically paid for my first years or our first years of income so I avoided drawing down in year one by selling this asset that I didn't really count I don't count it in my financial portfolio a car or even equity in my home for instance um I only look at the financial assets in year two I did own a very tiny piece of that company I worked for but it was a private firm I never counted it because I never knew if I would be cashed out who knows if the company will last you know will it be worth anything I don't know they did end up calling me and saying we're going to cash you out if you're up for it I was like yeah I'm totally on for it and that was a little less than year two's required income so it was not some big windfall kind of thing um we actually did own a second home home in Crawford Colorado so it's kind of over the hill from us and I did we did end up selling that in 2019 so that helped with the aspect of not having so much in or having so much in our traditional bucket that was a little more difficult to get to um so that has somewhat bridged the Gap that access actually now access is not an issue for me because an inherited IRA you do not have a 10 penalty I would have to pay the tax on it if I were to withdraw from that and my inherited Roth IRA from her is fully accessible without penalty so that age 59 and a half thing is not as difficult for me now but I'm actually not even really tapping into those too much um and uh so I've been doing really big Roth conversions so you know we were expecting to do many Roth conversions between um when I retired until you know rmd age um and on at the married filing joint tax bracket but when she passed away all of a sudden you become single tax bracket which is half as much so in the year that she passed away we're still considered marrying filing joints so I went up to the top of the 24 with a really big conversion uh and then in the following year my daughter was still considered a dependent so I was eligible for qualifying widower which is basically the same tax bracket as married filing joint so I did another really big one um and then for the next two years I'm still going to go up to the top of the 24 which is half as much for me as a single but still a pretty decent bracket but I am walking away from ACA credits by doing that because I'm trying to get ahead of having so much money in stock or not stuck but in the traditional bucket where rmds are going to kind of get out of control down the road so Roth conversion kind of strategy is is big on my mind now how best to do that to reduce my lifetime taxes as opposed to my this year taxes that that answered that question extremely thoroughly and what obviously shows a financial uh wherewithal and savviness and sophistication that is Way Beyond what my capabilities set in terms of of planning for these things well so I will tell you for fun I did get my cfp after I retired because I just wanted to learn more and I was again kind of scared about like should I you know should I really stop working and if I don't stop working what am I going to do and I said I really like personal finance maybe I'll just sit for the cfp I I did take you know the exam I passed it and because of my history in the financial industry I they gave me credit for all the hours that you need so actually I do have my cfp but it was primarily for a personal learning experience I don't um practice or anything like that but that is where some of the knowledge base does come from okay Mr cfp mechanically if I were to want to do this uh rollover Roth conversion stuff I I shouldn't use those words Roth conversion do you wait until the end of the year just in case you made some income do you do it throughout the year do you do it at the beginning of the year yeah so for me I almost purposely don't make any income because I kind of want to prove a point that you can actually live on your portfolio so it's funny because I go to these all these campfires and people are like I don't know anyone who's living really on their portfolio under the four percent rule I'm like well I'm living on a withdrawal rate rule it's not quite four percent it's lower than that but I am living on my portfolio it is doable so I almost feel like an obligation to prove a point that it can be done um so as a result of knowing I'm not going to have any income I Target you know I calculate how much do I want to convert in a year what are the pros and cons of doing that because like I said if I convert you know any dollars I convert I'm basically walking away from ACA subsidies so I view that as an additional tax what is that you know added on to my tax bracket equate to so therefore at what tax bracket do I want to go up to including walking away from the subsidies so for me I kind of do it in two pieces I do a pretty good amount at the beginning of the year and then I'll do a true up at the end of the year and for me I have this little bit of a benefit in that because I have an inherited IRA I can actually take a withdrawal from the inherited IRA and withhold well you could technically with withhold 100 but Vanguard where which is where that account is we'll only let you withhold 99 but I can basically calculate what my tax liability is going to be in December and then do that withholding because the IRS as long as it's withholding considers it as paid evenly throughout the year so I don't even need to make estimated taxes I do estimated taxes on the state side but not on the federal side and I just do a withdrawal to um you know withhold enough to pay my tax obligation and I do all that in the fourth quarter so the true up of the Roth conversion and the withholding calculation that I need to do to make sure I'm not going to be penalized so for those of us who aren't cfps ourselves and kind of got lost in what you were saying but understand that it's very important and we would need to do this when the time is right for us would we connect with a cfp to help us with this or would we connect with an accountant to help us with this hopefully the cfps understand this so a cfp could help guide you but a CPA would be the one that would actually make sure that you're doing it all correctly and so forth and actually finding a team that is a cfp and CPA combined might even be more beneficial um to doing that making sure you're doing it correctly it's not really that difficult especially if all you're focused on is the tax code that pertains to you particularly it's easier to understand it just like you know Brandon Matt fientist goes down rabbit holes with that it's not hard to do it on your own um and it's not there aren't really too many levers to kind of worry about other than really kind of figuring out the whole ACA aspect because that can come back to bite you a little bit if you're not aware of that and and frankly if you go over and into the next bracket it's not like all of your dollars are taxed at that next bracket it's just the incremental dollars that are taxed so you know yeah it's great to you know be right up to the edge on your tax bracket you know perfectly and you can do that with you know different software out there that you know there's public free software tax planning software out there that you can use to make those calculations but again if you go over a little bit it's only that extra dollar or two that's going to be taxed to that but do need to think about things like you know is net investment income tax going to come into play is uh you know are you walking away from capital gains at a zero percent tax bracket you know there are some other levers that you do need to kind of pay attention to but how do you handle health insurance Mark so I purchased my health and Thrones through the ACA and Colorado has its own plan I actually you know it's interesting because my wife was working when she was diagnosed with cancer just at a local she worked for the police department wasn't making much money but it did come with pretty good benefits and frankly she could actually stuff all of her paycheck into a 457 so that was actually our you know access to because when she you know planned to leave we had full access to the 457 so that was another little kind of quiver in our in our uh packet there I guess you would say um but um she was staying for the healthcare um primarily and we ended up actually um going on COBRA which in hindsight was kind of a mistake I think because we were afraid of rocking the boat as far as her doctors were concerned um and I think it was fear that was unnecessary we would have been fine if we just immediately switched over the ACA would have been a lot cheaper that was also when there were specific rules about she was actually laid off so she was considered unemployed uh and ex and receiving unemployment benefits and if you recall back in the covid times there was a special carve out if you had received unemployment benefits no matter what your income was even if you made a million dollars you were considered to receive full subsidy from the ACA we should have taking advantage of that we didn't so we would not only not have had to pay Cobra we would not have had to pay really anything on the ACA either and I think it was just a fear that the ACA wasn't going to be as good but what I found out is it's actually better than what her insurance was through the employer which was a small municipal government so I think you know don't fear the ACA it actually is really good coverage so what's what's uh what's next for you here well um so what I've been doing is you know I really do like um you know I was read Jordan's book taking stock and I was zero and really thinking about you know how can I um you know move forward after my wife has passed away and really enjoy life and what I found is that you know spending money on experiences and I am kind of learning how to spend that was a whole nother little piece that I've been working on and have this thing called a fun bucket and if we have time I can talk about that a little bit but basically I found that enjoying experiences and enjoying them with your social network is really where I get the most Joy right now and I think most people do if you do that combine experiences with social aspects so I've been you know I was just on a cruise to Alaska with a 50 friends uh a couple of weeks ago um we I do a whole bunch of campfires I love those that actually that Community has been so good in the economy as well and things like that and as I mentioned I'm doing the FI Freedom Retreats with Amy minkley and Bali this year there's a bunch of us going over to that so I just find you know traveling around with friends and of course living in a ski resort in a recreational community and there's always plenty of people willing to come and hang out here too so um that's kind of what the focus is and a lot of it is also with my daughter she really enjoys hanging out with me which is great so you know getting those experiences you know memory dividends lifetime memory dividends and putting them in the memory bank I don't think any of us would be disappointed in having those down the road so I'd love to hear about the fun bucket and then I'd also love to hear about if any of this um you know savviness with money and financial planning is rubbing off on your daughter and what um somebody how she's doing yeah so um the fun bucket actually came out I was at a campfire in California and I was staying with a friend uh ahead of time and he was asking me so how's it going withdraw down all that I'm like yeah well you know I'm kind of working on it and I don't really draw that much it was sub two percent at the time and he's like dude you need to start spending some money because you're just gonna end up stacking it up and you're gonna turn around and you're gonna wish you had done more I was like yeah but I just I don't know you know it's hard to you know get comfortable with pulling that money out he's like well you need a fun bucket I'm like well what is a fun bucket he's like so if you think about I retired in 2015 I had the wind in my back you know you're always worried about sequence of return being a bad sequence well not only was it not a bad sequence it was a really good sequence and he said look you have a lot of kind of cream on top of the cake just peel some of that off and stick it over in a fun bucket and just allow yourself to spend on things that you wouldn't ordinarily do so I said oh that's a pretty cool idea maybe I'll do that so I moved some money over into this separate online savings account labeled fun bucket and it's for all these things that you would normally not be comfortable doing but you're saying hey it's pre-funded it's sitting over there that's what it's for you need to spend it and I actually put like a timeline on it I kind of put four years worth of kind of and people ask me what's the number I'd rather talk about it in percentages it's kind of 20 percent of what my normal annual expenditures are per year and I did that for four years so let's say you were making 50 000 maybe it's ten thousand dollars a year for um four years or forty thousand you know you can change the numbers however you want but that's basically what it works out to um and so it's things like um well like for instance the Bali trip when it came up I was like I'm in and Amy's like well do you want to know how much it is I was like no I'm in and uh or this Cruise which was crazy expensive it was a really expensive high-end cruise and I was like nope I'm going no question that's what the fun book is for normally I would have like stressed about it I don't know if I want to take this money out of the portfolio and so forth and it's also for little stuff like you know if I get an email from a airline that says oh for 400 you can upgrade to First Class I'm like done or I never fly I always fly non-stop I never stop it and I know that's a sore point for Mindy but um you know I always fly non-stop I also fly whenever I feel like during the day I don't you know do early flights I'll do flights that make sense for me um I will you know when we go out to dinner and I'll pick up the dinner tabs sometimes you know just like no don't worry about fun bucket you know when people are like oh I feel bad I'm like no it's fun bucket and they're like oh that's cool you know what else can we do on your fun bucket um but that's kind of what the fun bucket was about it was to retrain myself how to spend and it's worked and actually what I found was I thought so what I do do is I will reimburse myself from the fun bucket you know I spend on my credit cards as you know all of us kind of travel hackers do and I can reimburse myself in the fun bucket what I've actually found is that I'm finding that I don't even need to reimburse myself always from the fun bucket but having the money in the fun bucket has allowed me to make that decision even though it really actually fit in my normal spending pattern so it was just a way to kind of retrain myself on how to how to spend and how much did you say you put in the fun bucket initially so in percentage terms um it is around uh 20 of my annual expenditure amount so you know and I live I pay I I pay myself a paycheck every month um from my financial Independence portfolio uh and this was over and above that so think of it in terms of let's say you spend a hundred thousand dollars a year it's twenty thousand dollars a year times four years and then as that depletes I'll re-upp it down the road at some point I haven't had to rehab it yet but because I actually opened it two years ago and I'm actually only at about one year's worth of spending even though I've spent the equivalent of two years I just haven't had to withdraw the full two years because a lot of that kind of fit into my regular spending pattern so are you going to increase your spending to increase the withdrawal rate of your fun bucket well so uh I will tell you that this cruise that we went on was so my daughter to go with me it was a seven day Alaska cruise on a very high-end cruise ship and and it was eighteen thousand dollars I think for two of us um and then on the cruise you save a little bit if you sign up for the next one so we actually signed up for a Mediterranean Cruise next year um I'm going my daughter's going and my mother's going my mother's paying her own way but our room for that one is 11 day cruise going from uh Greece through Croatia to Italy um and it was 20 grand so I mean it's not small so but if that money was not sitting there there's no way I would have just said yeah sure let's do it that's awesome so speaking of of your family um is there a Phi tradition getting started in in uh in your household and your family oh right that was the second part of your question so yes my daughter has come now to two campfires she was at Rocky Mountain last year and she actually spoke with me um and so that is up on the YouTube page for Camp five so you can see our speech there but basically was talking about how we talk about financial matter years in our household how that's translated and some of the things she's learned from us and what the moral of the story is she learned from modeling not from preaching um really what we do is is um what translated into her kind of path and she is you know she's also just graduated from CSU with a master's in accountancy so she's got the right kind of brain for all this stuff but she did come to Camp five this year as well in Colorado and brought a friend um and so yeah she's definitely on the path and I actually teach a financial literacy class in the high school that I was asked to create about seven years ago now so she was in that class as well when she was in high school so she's definitely um you know drinking from the Kool-Aid that's wonderful to hear so we'll have to have her in the show at some point if she's uh if she's interested so I would love to hear about her journey and how that's going yeah well I mean one of the you know benefits in a way um is that she started um we actually contributed to our 529 account and had her understand what that account was the whole way through so really once she was in Middle School I think and we kind of we have an only child so it was a little easier I do you know kind of preface it with that so we kind of math that what did we think a um a state school would cost when she turned 18 and we kind of math that oh we think it'll be about a hundred thousand dollars worth of contributions and we'll see how that goes so it was 500 a month from the day she was born um every month through her 18th birthday so that's like 108 000 I think contributions but there was also really good market returns during the time so there was actually quite a bit of money in that account more than it would cost to go to a state school and we basically sat down and said hey look this is uh a pretty good amount of money you could go to an Ivy League school it may not quite pay for that but that you would have to figure out the difference or if you go to a school that costs less this is your start in life so she chose a state school and actually the 529 ended up paying for um five years of school including her one-year graduate program and she still was left with over half the money and so that was kind of her start in life and then also um originally we started with the utma account which I wouldn't necessarily suggest um before we kind of figured out the 529 thing so it was basically 50 50 between utma and 529 um so the 529 basically was used to pay for school and she ended up with the utma which you know basically turned into a regular brokerage account but over the years as she was earning money starting I think at age 15 we would move money from the utma account over into a Roth IRA to the degree that she had earning earned income so she's been doing that since she was 15. so now she has a Roth pretty sizable Roth IRA and this brokerage account and did not have to pay for school so she's got a pretty good start just even starting off without having to pay for school not you know graduating without student debt is a huge leg up yeah for sure never mind all that other extra money not extra money additional money there's no such thing as extra money she did ask him like Coastline yet I said well I don't know if we're quite there yet but Mark thank you so much for sharing your incredible wisdom and savviness and Technical expertise on managing you know a a a five portfolio here with us thanks for sharing the principles that got you there and um for the uh the the the wonderful success story from a financial independent standpoint um that your approaches has been so really appreciate it and um where can people find out more about you well first of all thanks for having me I really appreciate it and um so I'm pretty active on like Facebook just under my name Mark Troutman and that's with an a t-r-a-u-t-m-a-n um on other platforms it might be at Mark's money mind and um for my blog it's marksmoneymine.com and I don't I like to joke that I write about as much as Brandon the Matt finest I think we're in a competition for the least number of posts um but um I do I I would like to post something about the fun bucket and I think I'm kind of obligated to do that so I want to I want to get that out there at least so maybe there'll be more on that there do it if you get that article out before this episode comes out we'll link to it in the show notes cool and if you get it out after this episode comes out we'll link to it in the show notes afterwards just send me a link and if anyone is interested in that financial literacy class A lot of people ask me for that so I actually put it out there as a post on the website that you can see the entire course you know it's basically it's not a paid course or anything like that it's totally free anyone can go view it um it was basically what I recorded in 2020 for covid so I couldn't go in the classroom so I just put up all of those videos from 2020 and all the handouts of anyone's interested in the basically a seven week financial literacy course directed towards high school students but pretty much anyone I mean adults go through that too so it's free anyone can see it it's just easier to put it there than to email it out to people that ask for it and we will definitely link to that in the show notes awesome mark thank you so much much for your time today it was great to talk to you and we'll talk to you again soon all right Scott my mind is blown that was Mark Troutman from Mark's money mind and Holy Cannoli all of those things he was telling us at the end I'm gonna need to go back and listen to this show and take a lot of notes what did you think I think that you know despite the the personal loss that Mark had with his wife passing a few weeks ago I think that this is a fellow who really has attempted and done a really good job of living his best life with inside of his values being uh consistent and conservative and disciplined with his finances as is extremely confident as an individual with how he thinks about money Building Wealth and pursuing um and and designing his life and I think that's an example of of of a way of a great way to go about it um and to go about um trying to trying to optimize for that happy wonderful life I I think it's funny uh to a certain extent that he had has to make an actual point of not earning money because he Prides himself on being this expert in the financial Independence space and so it makes a point to not charge anything or anything even though he got his cfp license and clearly loves talking about all of this uh financial planning stuff and could easily get paid for doing stuff that he likes to talk about anyways I I love the fact that he travels to the these Camp fives and makes us to make a point to to spend more because he's uh reflecting on some of the good advice and die with zero I just think it's a fantastic story here and someone to learn from I think you would a lot of listeners would do well to follow a lot of the stuff that Mark's putting out and um and learn from him yep I like what you said Scott he's living inside his values and that seems to be something that he has done his whole life he knows what he wants he doesn't waver from that and that gives you ultimately what Mark has so far a life well lived yeah and and there's just fun in there like this is not like get all out and you know intense effort to pursue uh you know Financial Independence and wealth creation this is a guy who raced cars and went to Saint Barts and had and had a great time so again I think there's a there's a right way to go about it and um if you're if you have a competence set and ability to earn income um a discipline and those kinds of things that that Marcus had you know thinking about how to emulate some of the things he's done might be a wise a wise approach I completely agree oh I do want to point out one thing before we get out of here though you know so we talk I've observed a large number of people who are financially independent and they've all got an ace in the hole right Marx no different in the sense that he doesn't live off of a four percent rule uh you know with a 60 40 mix stock bonds portfolio he had the car that he sold and he had the uh this that and the other thing associated with his first couple of years for income generation in the path to Phi and has a much more conservative overall portfolio so I think it's just another example of hey you know this Phi concept the four percent rule is the beginning of the end of the journey to financial Independence and even though it's technically the right answer we continue to see examples of folks who need a little bit extra on top of that to truly feel comfortable and secure as a financial independent um person yes and honestly I don't know that we'll ever be able to convince everybody that four percent is the way to go I know that four percent is the way to go even convinced anybody that the four percent rule is the way to go I don't again I can't think of a single example of someone who is who has uh who has retired of the four percent Rule and nothing else right it has no other ASAP Ace in the whole no other cash position no other actual um uh uh backup plan there well I understand that mathematically it works but even though I do this every day I don't really want to put all my eggs in that four percent basket so that's right so I think it's just I I I just continue to observe that in discussion after discussion after discussion interest or discussion with financial independent folks uh that everyone agrees with the math and not a single person lives it and it's in a literal interpretation of it yep that's okay though that's you know it's your life live it the way that you are comfortable all right Scott should we get out of here let's do it that wraps up this episode of the BiggerPockets money podcast he is Scott trench and I am Mindy Jensen saying bye bye apple pie BiggerPockets money was created by Mindy Jensen and Scott trench produced by Kalyn Bennett editing by Exodus media copywriting by Nate Weintraub lastly a big thank you to the BiggerPockets team for making this show possible [Music] all right [Music]

Channel: BiggerPockets Money

Views: 29,660

Keywords: early retirement, fire by 50, fire movement, financial independence, retire early, financial independence retire early, certified financial planner, financial literacy, personal finance, house hack, live in flip, how to invest, investment portfolio, real estate, wall street, stock market, index funds, brokerage account, individual retirement account, roth ira, roth conversion, tax strategy, tax liability, biggerpockets, biggerpockets money, biggerpockets money podcast

Id: rGO242mPx68

Length: 60min 3sec (3603 seconds)

Published: Fri Sep 01 2023